DeFi has a Data Availability Gap That No One is Talking About – Ganesh Swami

so who's excited to be here in Denver Wow a lot a lot of hands awesome so I'm gonna be talking about a very specific problem that covalence solves and we the moniker we've given to this problem is the data availability gap so just a brief intro to defy for if you have been you know not exposed to it so a little bit about myself so I'm a physicist by training and I worked on pharmaceutical drugs for a very long time before moving to the Big Data space and so I and a bunch of people started covalent couple of years ago to solve the data problem on the blockchain and so I'll go into more depth in that in a short while and so anything about defy data analytics anything post the fact come hit me up excited to you know gem ideas so defy in in my perspective is just FinTech 2.0 and so FinTech cuts out the traditional banking structures then I would say defy takes it a step further and completely cuts out the middleman so that's really how I put this narrative in my mind that defy is FinTech 2.0 and so this is really an exciting time to be in this space because you can see everything that's going on in the finance industry and for someone like myself who's not from a traditional finance background this is a really you learn a lot I've learned so many buzzwords you know people in tech are usually anointed with buzz words but Finance has its own set of buzzwords so this is my perspective on what defy is and defy is basically the biggest narrative that's happening on material it's mostly all aetherium so one metric that the community keeps track of is the assets locked in the system and so that is just recently as of last week crossed a billion dollars so that I think is a big model Stone you know whether you agree with the metric or not is a perspective in fact we even have a blog post on our blog on why this is not a good metric but you know it's it's something it's a it's a it's a meme and it's a rally cry for the entire community to come come come together and so you can slice this data in other ways the number of loans that are originated the transaction volume all those things but the key thing is the total value lock in the system is growing tremendously so let's get cut to the chase right so all the data on the blockchain is is public but you can't really get it out I mean you can go to ether scan you can download some CS fees you can look at your transactions but if you want a programmatic way to extract data from the blockchain it's actually really really hard it's expensive because you need to run these archive nodes and not only running archive nodes are expensive you also have to write some kind of scripts to extract that data into a format that you can use it's a black box a lot of these smart contracts are very complex I believe the Maker Dao system has about 50 different contracts so there's like transactions going back and forth so it's very hard to decipher what's going on and and blockchains itself are increasing complexity you've probably heard of all the roll up technology and the zero knowledge proves so more and more of these scaling technologies are making the transaction data hard to decipher and and pull out so I think the complexity of this data extraction is becoming super hard and that's why there's a gap in in the availability of data so we will jump to a case study which illustrates this problem and so this is a real case study what what has happened is we don't know the client we know their tax accountant they have gone level it leverage long on maker so what they have is they have a couple of million dollars and eat that they locked up and maker minted I sold the die for eat on Oasis which is a decent so as exchange and use that eat to lock it back in and then did that five times and asymptotically you get about 3x leverage so which is great they got in at about you know seventy eighty dollars and they existed that position about 225 so they made a lot of money but they had no idea what their P&L was because all of the cost basis all of the steps was super hard this this was over a course of multiple weeks and hundreds of tens of thousands of transactions so the record-keeping nightmare is basically this right so this person opened up the CDP using makers portal and then inside app which is a front-end for a lot of these protocols makes it easy to open and manage your maker and compound positions so then they migrated from the CDP which is open through makers portal through in Saddam so incident has its own smart contract wallet so your positions are actually fragmented across these two different wallets and who knows if that particular transfer is taxable or not right so that's still a lot of a lot of questions there when you buy a million dollars of died on Jesus to the exchange like Oasis it gets chopped up and each fill has a different cost basis a different die price so sometimes is 99 cents sometimes there's a dollar one cent so you need to keep track of that because that's essentially how you make the profits if you have a coin base or a by Nance account you can just go there and download a CSV of all of your transactions right they've no figured all of that stuff out because it's just a centralized database there's no download CSV button for a lot of these taxes and they're a lot of taxes it's not just Oasis right there's as you know swap this khyber there's one exchanges the aggregators that split up across different things so it's actually really complicated simpler things like for example if you shut a CDP it gets assigned to the zero zero zero address and some of you guys might know that that's like the dev null of the blockchain so it's the kitchen sink everything gets assigned to it and so no one is really indexing that address because it has all the garbage in it so you can't really figure out how what am i shut CDP's maker scan won't do it make a tool to undo it no tools out there do it unless you're able to scan the entire blockchain and you know a lot of times these are automated scripts that do the trades so there are tens of thousands of trades and bringing all of that stuff up on the browser is actually pretty heavy so you your browser actually crashes in a lot of these cases a lot of the transactions inside me or may not be taxable you know this is not tax advice is not investment rice but it really depends on the jurisdiction so for example in France crypto - Krypto is not taxable but in Canada and the states it's taxable some people say that in the previous CDP system when you had eat to wrap eat to pulled eat that is actually a taxable event so at smaller amounts it's not really a big deal but bigger amounts it actually matters you need to keep track of these things and so you you need a transaction that breaks down into the granular forms classification of taxable events like the pool eat wrap eat conversion as an example but there are other kinds of things like do you recognize certain kinds of transactions in the staking world what happens is you're staking rewards and your air drops and your transaction fees they're all different kinds of transactions and depending your taxation rules they're taxed differently the composable nature of defy really amplifies this data availability gap so it's very common these days - I think some of you guys probably heard today that b0x had had a problem and that's because you know it's sourcing data from multiple different on chain entities so it's not really a hack it's a it's a different kind of exploit right it's not a smart card hack so you know it there's this you can you can source liquidity from unis wah from Khyber a lot of these pools or you can aggregate them so the composable nature of D Phi which is amazing actually makes the keeping nightmare even more it's just gonna keep you up all night if your nightmare is just like five minutes right so that's really what the challenge with the problem statement of what the gap is so you know in in the u.s. the IRS is something you cannot ignore right so the general look back they can just come back for an audit in three years if you've understood your income they can come back to you in six years if there's fraud or there's some problem they can come back for you ever so you you can they can come back to you six years from now ten years from now and say hey what happened to these trades how come you haven't recognized income on these and then what's up okay and now you have to pay penalties on these things and then you know it's just a just a mess so this is the same in Canada as well so you know you really need to keep your records to make sure you're compliant so we built a a front-end on top of covalence data so covalent indexes the blockchain where a blockchain indexing solution and so the moniker we use is it's a download CSV for Defy data a lot of our clients they have in-house counsel they have in-house tax accountants and so they don't really a taxation solution because they do it by hand it's very complex all they need is download a CSV and give me all the data so I can do my pivot charts and figure out my liabilities and so that's basically what we've built so I'm gonna do a quick live demo to show you like some of the things that we do so the the front page it's safekeep dot app some of the things we do is it's still in private better so come ask me for a code after so the whole fragmentation of wallets right because you have smart cardiac wallets an argent and gnosis safe in Insadong dapper is another smart contract wallet there's a way for you to fuse these wallets together and get a holistic picture of your assets so we automatically do those joins so all you have to do is put in your ENS name here and it's good to go and so this is the the maker system so we support about ten different protocols so we've decoded data not just transactions but we're actually able to understand the dphi action so whether it's a borrow or or a steak or a lend or a trade or a swap and then and then this up to you to decide what that means to your business or to yourself and so this is an example of pulling out waltz and CDP's that are with an instant app within your meta mask wallet because sometimes you just don't like the makers CDP system the portal doesn't pull up in sedap CDP so this is a centralized place to pull up all of this stuff and of course we have all of the actions so you can just download CSV so it tells you all the cost basis these are all the shots CDP's and this is basically the only place to get your shots EDP so you can go to make a tools you can go to make your scan it's all on the blockchain it's not data that we invented it's just it's very difficult to get to it another example is token sets token sets is a very popular protocol it's it's like an ETF it's a basket of assets and it constantly rebalances and for tax benefits it's non-custodial so you don't pay taxes on the rebalancing so if you did the rebalancing yourself you you have liabilities so in token sets the the way this works is that you accumulate a position a token set and you have a different entry point and so you need to figure out the cost basis either a weighted cost basis or some kind of Taxation model and then from there you have to figure out that realized and unrealized gains to know your P&L so that's basically what this is so we're able to do p and else for your token sets maybe they should make it dark mode that's better so this is uh just some random adders that pulled up on ether scan I put it in here it's able to pull up all of your positions all of your cost basis and your your P&L and then of course all of your close trades and then you can just download a CSV to figure out what your liabilities are and of course it also shows you all of the rebalancing events because it's pretty very important to keep track of these to know if you're still profitable or you want to change your strategy so yeah that's that's the end of my presentation and I'm happy to take up questions I believe there's a there's a microphone since okay thank you man great stuff so the PNL side is just on the right side that's the plus or minus thing yeah it's just that simple so it gets you the current market price it gets you your cost basis and then the subtraction is your P&L so and can you set it up for dates say for example last month this month the year before or this is a picture of everything that has happened we could do that but it's not implemented on this thing we have the data for that yeah but that's a great idea Thanks any other questions you talked a little bit about beginning but I'm is there another metric you think we should be looking at when it comes to defy so it's a little off topic here but you know since we have some time I'll just you know talk a little bit about it so we have a blog post on this that goes into the details so the total value locked is it goes up in two ways right so if your each price it's actually a proxy for each price so if your each price each USD price drops then what happens is people top up their collateral so that they don't get liquidated so it actually goes up and if the eat USD price goes up you have to do nothing it just goes up because that's in dollars so it doesn't really tell you what the activity is or it doesn't tell you what's going on with the engagement data essentially that's what you need to care about so the loan origination or that kind of activity like granular data makes more sense I think okay great well thanks so much I'll see you guys around thank you [Music] you